To know if a demand is elastic at a certain price, you must evaluate it with the methods we are going to analyze. Your demand does not depend on the purchase price. For example, when it is perfectly inelastic, by definition, consumers have no alternative to buying the good or service if the price increases, so that the quantity demanded will remain constant. When the demand at a certain price is infinite and any increase in that price would decrease the demand to zero, it is supposed to be perfectly elastic.
If your merchandise is distinctive and desirable, it is likely to show an inelastic demand related to the price. On the other hand, an article is considered inelastic if a large change in price is accompanied by a small amount of change in the quantity demanded. The products that represent a larger part of the client’s income have a greater elasticity.
Any increase in the price will be compensated by a lower demand and the total income will decrease. Again, increases in price do not significantly affect demand. After the increase in price equals the fall in demand, it is called an elastic unit. Imagine that there has been a growth in the cost of gasoline, in the short term people will continue to buy gasoline since there will be very few alternatives.
Elasticity denotes the level of responsiveness in supply or demand in relation to changes in price. However, instead of relating real prices and quantities of goods, it shows the relationship between changes in price and quantity. For example, the greater the range of substitute products available, the greater the elasticity. The positive price elasticity is not common. Your current price elasticity is simply a single data point that can help you make those future decisions. When you think that an item is a luxury item, you will have a higher price elasticity. Sometimes it is useful to calculate the price elasticity of demand at a particular point on the demand curve instead of calculating it in a matrix.
The demand curve is a simple means to find out if the demand is elastic. Consider a case in the following figure, where it is very elastic, that is, when the curve is almost flat. In the case that the demand curve is linear, it is not necessary to take the derivative.
If prices go up just a little, they will stop buying so much and wait until they return to normal. From this demand curve, it is easy to visualize how even an extremely large change in price would have no effect on the quantity demanded. In most cases, the demand for a large increase once the price falls, ceteris paribus. Setting the right price for your service or product is difficult.
The price proved to be a negative move while the quantity proved to be a positive move. Actually, determining the price is one of the most difficult things that a marketing specialist has to do, in large part because it has such a large effect on the company’s results. Also, you should not assume that if you increase your prices, the demand will decrease. The cost is really the only thing that matters. In some scenarios, prices that maximize profits are not an optimal strategy.